ENERGY POLICY:

Despite dawn of a new term, forecast cloudy for energy and enviro issues

Nick Juliano, Jean Chemnick and Phil Taylor, E&E reporters

E&E Daily: Tuesday, January 22, 2013

The inauguration is over, and a new Congress is getting organized this week. So time to get to work, right?

Not so fast, at least when it comes to the plethora of pending energy and environmental issues -- from power plant rules to pipeline permits -- that are awaiting action in President Obama's second term and will draw intense scrutiny on Capitol Hill.

The House and Senate remain sharply divided, and an array of higher-profile initiatives, such as gun control and impending budget showdowns, are expected to draw most attention from lawmakers in the coming months.

Assuming Congress avoids economic catastrophe and navigates the trifecta of the debt ceiling, sequestration and expiration of government funding over the next six weeks, lawmakers are expected to turn their attention to comprehensive tax reform, which could have substantial reverberations for energy companies and especially wind farms.

Beyond tax reform, House Republicans plan to continue efforts launched in the previous Congress to block environmental rules and expand oil and natural gas exploration, although it seems unlikely that those efforts will be more than a messaging exercise.

The Senate Energy and Natural Resources Committee is expected to take an early look at natural gas issues and some public lands bills, but it's likely to leave larger fights -- like increased drilling and clean energy subsidies -- for later.

Senate Democrats also are planning a renewed focus on the consequences and response to climate change, in the wake of Superstorm Sandy, but those efforts seem unlikely to bear much fruit in the conservative lower chamber.

That leaves the administration carrying the ball when it comes to goals of protecting the environment and furthering an "all of the above" energy push. Industry and environmental leaders are anxiously awaiting a State Department recommendation on the Keystone XL oil pipeline, U.S. EPA climate change rules for power plants and new Interior Department draft rules on hydraulic fracturing, among other pending actions.

"Congress doesn't have to do anything, and the president can set carbon pollution standards for existing power plants, oil refineries and other facilities, and there is going to be continued effort to encourage him to do so," said Daniel Weiss, senior fellow and director of climate strategy at the Center for American Progress Action Fund.

But the heads of those agencies have stepped or will soon step down, raising questions over how quickly the second-term regulatory agenda will be rolled out and whether any senators will attempt to hold hostage executive branch nominees in an effort to win policy concessions.

At State, Sen. John Kerry (D-Mass.) is expected to win easy confirmation to replace Hillary Rodham Clinton, but he is remaining mum about Keystone. When she steps down next month, EPA Administrator Lisa Jackson will be replaced -- at least on an acting basis -- by Deputy Administrator Bob Perciasepe, though Obama has not nominated a permanent successor. Interior Secretary Ken Salazar will leave in March, and his replacement remains a mystery.

Also unknown is the next head of the National Oceanic and Atmospheric Administration after current chief Jane Lubchenco leaves in February. And Energy Secretary Steven Chu is universally expected to be resigning soon, though he has yet to formally announce his plans.

Budget battles, tax reform

The most pressing issue at the moment is the need to increase the debt ceiling before the Treasury Department runs out of ways to juggle the nation's finances without defaulting on any obligations. That deadline is a month or so away, and it comes around the same time that Congress will have to grapple with the across-the-board spending cuts known as the "sequester." Lawmakers also must extend the "continuing resolution" that is funding the government through March 27.

House Republicans this week plan to push legislation that would extend the debt ceiling for three months and force Congress to adopt a budget resolution, but it remains to be seen how that effort will fare in the Democratic-controlled Senate and with the White House (E&ENews PM, Jan. 18).

Once those fights are over, the focus is expected to turn to tax reform.

"Obviously, at some point in time, we're going to start the debate on tax reform, but most of the focus right now is on sequester and the debt limit," said Rep. Pat Tiberi (R-Ohio), who chairs the Ways and Means Subcommittee on Select Revenue Measures.

Tiberi's subcommittee has jurisdiction over temporary tax breaks, such as the production tax credit (PTC) and other incentives aimed at promoting renewable energy and efficiency. He predicted last week that the first tax reform proposals would be released by Ways and Means Chairman Dave Camp (R-Mich.) in the coming months.

Fresh off their successful push to extend a key tax break in the PTC, wind industry lobbyists are beginning to prepare for the tax reform fight. But the push for some longer-term certainty around the status of their PTC will proceed without at least one key ally in Congress.

Rep. Dave Reichert (R-Wash.) introduced legislation in the last session that would provide a four-year extension to the credit, but he says the one-year extension and expansion of the PTC that were included in this month's "fiscal cliff" legislation should be sufficient for the industry. The package included an important change backed by the Senate Finance Committee that allowed developers to claim the credit as long as they begin construction this year.

The change effectively gives developers at least two years to complete their projects, although the precise details on eligibility still need to be detailed in forthcoming guidance from the Treasury Department and Internal Revenue Service (E&E Daily, Jan. 15).

"I think that the way the language ended up being written in the bill, they've very much benefited from the Senate language, and I think that will be the phaseout. I don't think there will be another attempt" to renew the credit, Reichert told E&E Daily in a brief interview last week.

Reichert's comments came as a surprise to several industry lobbyists, who are gearing up for a renewed push for a longer-term extension of the credit that would phase out over time. The American Wind Energy Association last month floated a six-year phaseout that it envisioned becoming part of a comprehensive tax reform package, and several industry advocates said that proposal will be a jumping-off point for this year's lobbying efforts.

Key players in the industry are beginning to game out their strategy, and more clarity is expected in the coming weeks, said one source closely involved in the process who requested anonymity.

With tax reform on the back burner in the immediate future, the industry also is focusing on fights outside the Beltway, such as efforts being organized by the conservative American Legislative Exchange Council and others to overturn state-level renewable energy incentives.

"We're basically focused on building more wind farms, and that's the top priority right now for the U.S. wind industry," said Peter Kelley, a spokesman for the American Wind Energy Association. "We'll also be working on defending the state renewable portfolio standards and strengthening commitments by the states, as state legislatures come back into session."

Opponents of the PTC already are up and running, with a leading opponent, Rep. Mike Pompeo (R-Kan.), last week reintroducing his legislation to eliminate it and several other energy-related tax credits (E&E Daily, Jan. 16).

'Drilling for cheese on the moon'

While the broader battles over deficit reduction and the federal budget may steal the headlines over the coming months, energy and environmental issues won't go completely dormant in Congress.

The Senate Energy and Natural Resources Committee is expected to hit the ground running next month with an informational hearing on natural gas and possible movement on public lands bills.

Incoming Chairman Ron Wyden (D-Ore.) and ranking member Lisa Murkowski (R-Alaska) remain split over the export of natural gas. Wyden has said he's worried that exports could affect domestic prices, while Murkowski, whose state is flush with gas but has few markets to sell it, has been an outspoken advocate for exports -- a view shared by gas drillers.

Each had his and her own take on an Energy Department report released last December that found shipping liquefied natural gas abroad would benefit the U.S. economically but could negatively affect energy-intensive manufacturers (EnergyWire, Dec. 6, 2012).

Exports aside, Wyden is believed to see eye to eye with Murkowski on more issues than former Chairman Jeff Bingaman (D-N.M.), who split with the Alaska senator over whether coastal states should get a greater cut of offshore drilling revenues, a disagreement that derailed efforts to pass a comprehensive oil spill response package.

There is widespread hope among offshore drilling advocates that Wyden and Murkowski will reach a revenue-sharing agreement that would encourage more coastal states to welcome drilling off their shores -- something environmentalists would fight hard to avoid.

But Wyden and Murkowski are expected to first tackle smaller issues on which they both agree -- including public lands bills, hydropower, geothermal energy or timber development -- and leave the tougher fights for later, said Murkowski spokesman Robert Dillon.

"We don't want to start off with drilling for cheese on the moon," he said.

That means Democrats may not immediately demand action on clean energy standards or subsidies, just as Republicans won't immediately demand opening up the Arctic National Wildlife Refuge for drilling.

As Congress wages bigger battles over gun control, Medicare reform and federal spending, ENR may not be the center of attention, Dillon said. But members still will be meeting regularly to discuss their legislative priorities.

"Certainly there are bigger fish to fry right now," he said. ENR's work "will get overshadowed in the media, in the public discussion. But the point is that members still come to work every day."

He added, "We may hold a hearing and no one comes, but you're still going to get the information to the members."

Keith Chu, a spokesman for Wyden, said the production, use and export of natural gas will be one of the first issues the committee explores. It may also take an early look at public lands bills that passed out of committee last Congress but stalled in the waning months of 2012.

The committee passed several dozen lands bills last Congress, including measures to designate new wilderness in Michigan, Oregon, New Mexico, Washington and Tennessee; to create Delaware's first national park unit; to acquire, conserve and expand historic battlefields; and to protect wild and scenic rivers in Washington and Delaware. Only a couple of bills of significance passed Congress.

Next up for the committee would be bills it failed to mark up, including Murkowski's bill to allow a Native Alaskan corporation to select timber-rich lands in the Tongass National Forest to complete a decades-old settlement.

The Sealaska bill, named for Sealaska Corp., which would receive the land, was strongly opposed last Congress by environmentalists, sportsmen's groups and some local Alaskans. The Obama administration also had concerns, but sources suggest that many of the disagreements had been resolved by the end of the last Congress.

Some argue that an agreement on Sealaska may be a prerequisite for passing public lands packages.

EPA and climate

While energy tax policy will be decided on Capitol Hill, EPA will continue to lead on emissions policy in the second term, including on climate change.

The agency faces a statutory deadline to finalize its first-ever greenhouse gas rule for new power plants by April 13, though it has missed similar deadlines in the past. Environmentalists hope it will not be diverted from that timeline because it is simultaneously pursuing a confirmation for administrator.

"There is a compelling scientific urgency for the agency to carry out its responsibilities in addressing climate destabilizing pollution," said Vickie Patton, chief counsel for the Environmental Defense Fund. "I fully expect EPA to carry out its responsibilities under the law."

Weiss of CAP said that although he expects the White House to name a successor to Jackson soon and for EPA to meet its April deadline, the confirmation process likely will be less than gentle.

"It wouldn't surprise me if Senate Republicans take Cabinet nominees hostage and try and ransom them for weaker public health protections," he said.

But if the GOP makes climate change an issue in confirmation hearings for EPA, DOE or Interior, Weiss said, that would play into the hands of Democrats who are eager to elevate the public conversation on climate change.

Josh Freed, vice president for clean energy at Third Way, said EPA may hold off on issuing the greenhouse gas rule and other regulations until after the Senate confirms a replacement for Jackson.

"I think it's just easier when you have permanent leadership to do all the engagement with both the Hill and other constituencies than with the acting or with the new administrator settling in and having to address questions about regulations being rolled out during their confirmation hearing and all of that," he said.

The future power plant rule will be followed by a greenhouse gas rule for the current U.S. electrical fleet, which accounts for 40 percent of the nation's carbon dioxide emissions. EPA agreed to promulgate the existing source rule more than two years ago under the terms of a settlement with environmentalists, but the agency has made slow progress and may not propose it until later this year.

"We have to finish the new sources first, which isn't done," Deputy EPA Administrator Perciasepe said last week when asked about EPA's progress with the existing power plant rule.

The agency is expected to send the White House Office of Management and Budget a proposal in the next few weeks that would cut the amount of sulfur in gasoline, resulting in less harmful tailpipe air emissions. The so-called Tier 3 rule is opposed by the petroleum industry as costly and unnecessary, but Patton said it is neither.

"Every serious study that has examined cleaner gasoline has concluded that cleaner gasoline can be produced at a penny a gallon or less," she said.

The agency has also pledged to revisit its atmospheric ozone standard after the White House pulled the plug on an EPA proposal in 2011.

While EPA does its work, Obama has promised to lead a "conversation across the country" on climate change. The administration is sponsoring briefings on the draft 2012 "State of the Climate" report, released last week in cities around the country. Some environmentalists and others are also pushing for Obama to host a White House summit on climate change (E&ENews PM, Jan. 9).

Weiss said he expects the "conversation" to focus primarily on the science of climate change. "They're going to use science and scientists to drive the conversation," he said.

He also expected Obama to mention climate change in yesterday's inaugural address but to use next month's State of the Union address to provide more policy specifics.

Meanwhile, Senate Democrats including Environment and Public Works Chairwoman Barbara Boxer (Calif.) have signaled that they plan to devote more resources to climate change in the 113th Congress than they did in the previous two years, creating a new senior committee staff position focused on climate and convening a group of senators who plan to produce legislation (Greenwire, Jan. 11).

"Sen. Boxer has said that is definitely one of her priorities moving forward," Jason Albritton, a committee aide to Boxer, said last week at a conference in Washington.

But Freed said EPW, with its history of partisan conflict on regulatory issues, might not be as suited to enacting legislation as the more collegial Energy and Natural Resources Committee. He pointed to the success of an appliance efficiency bill sponsored by Sens. Rob Portman (R-Ohio) and Jeanne Shaheen (D-N.H.) that became law last month (E&ENews PM, Dec. 18, 2012).

"If you look at what's succeeded over the past two and four years, it was built around either regulatory actions such as increasing fuel efficiency standards for cars, or around smaller proposals that addressed economic competitiveness [and] financing issues for energy," said Freed, referencing the fuel economy deal Obama helped broker in his first term and energy tax incentives.

"I think that is the most likely model for success in this Congress, as well," he said.

Still, Freed said members of Boxer's "clearinghouse" might not be deterred from offering legislation just because it may not become law.

"There are a whole bunch of different reasons for people to author bills beyond an expectation that they will be able to move through the committee process and get an up-or-down vote on the floor," he said.